Tesco shares slide despite best sales growth for a decade

Shares in Tesco have sunk more than 8% despite the UK’s biggest supermarket chain reporting an 11th consecutive quarter of rising sales.

Across the group like-for-like sales, which remove the impact of new stores, rose 4.2% in the second quarter.

Tesco chief executive Dave Lewis said this was the best sales growth in more than a decade.

Sales at Booker, the food wholesaler that Tesco bought at the end of last year, jumped 15.1%.

The firm had “made a good start to the year”, Mr Lewis said, with profits mainly driven by growth in the UK and Ireland.

Pre-tax profit rose 2.2% higher in the first half to £564m.

Shares fell almost 20p to 215.3p in morning trading in London.

Bruno Monteyne, an analyst with investment bank Bernstein, said that Tesco has delivered strong sales growth in food in the UK and at Booker, but overall profits were “soft”.

Laith Khalaf at Hargreaves Lansdown said Tesco “is in fine fettle”, with revenues, profits and debt “all heading in the right direction, though the share price is under pressure as margins aren’t moving forward as quickly as hoped”.

Richard Hunter at Interactive Investor said: “Since elephants do not gallop, Tesco can be pleased with its ongoing and measured progress.”

However, he said that the proposed merger of Sainsbury’s and Asda would add more competition to the sector, pressure from discounters continued and “Amazon also casts its own long shadow”.

Image copyrightDANIEL LEAL-OLIVAS/Getty Images

Last month Tesco unveiled a new discount chain called Jack’s to take on discounters such as Aldi and Lidl.

Mr Lewis said he was “really very happy so far” with the performance of the two new stores.

“So far, so very very good,” he said. “The two stores are trading very well, consumer feedback is really very good.”

Two more Jack’s will launch on Thursday in Edge Hill and St Helens in Liverpool, he added.

Brexit plans

Mr Lewis said that retail market conditions were tough, and that the supermarket was making contingency plans for Brexit.

“The biggest single challenge will be in a no-deal scenario, will be what happens with fresh food,” he said.

“It’s all about product flow [over borders]. The possibility of stockpiling fresh food is very, very limited.”

Mr Lewis said in the lead-up to Brexit Tesco was focusing on how to ensure imports of fresh food were not held up.

He added that the retailer was looking at stockpiling grocery products.

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